The value of a blockchain-enabled supply chain

Managing a modern supply chain is rather like solving a Rubik’s cube. It’s multi-faceted, and actions taken in one plane have consequences in others. Keeping track of them all can be difficult.

In fact, supply chain management is, if anything, more complicated than this. Several factors are beyond your control – regulatory changes, for instance – whereas a Rubik’s cube simply does what it’s told.

In this paper, we’re going to look at some of the obstacles that can be encountered in the supply chain, and the degree to which blockchain technology can change the game for the better.​

Supply chain challenges

While modern supply chains take advantage of technology in various ways, they still face significant challenges:

• Complex ecosystem – global enterprises have gradually developed an intricate web of suppliers and logistics channels, operating at regional, national, and international levels
• Lack of traceability – the complexity of the supplier network can make it difficult to pinpoint provenance
• Lack of responsiveness – process mismatches within and between individual countries and operating companies can cause delays
• Lack of visibility – if processes are mismatched, barcodes may not be enough to keep track of goods in transit
• Data reconciliation – different processes are also likely to log data in different ways. This, too, can be a problem
• Lack of trust – if systems and processes aren’t transparent, there is less chance of a single source of truth around which organizations and their suppliers can congregate.

It’s the complexity that’s at the root of all these challenges. In the past, a company may have had a limited number of preferred suppliers, and it would know what to expect, and whom to call in the event of problems. However, in today’s business ecosystems, participants often don’t know one another and don’t always have the visibility into multi-tiered supply structures, as well as each other’s data and activities, which can catalyze exposure to risk. Can they go back to their old practices? No: the markets they serve are too big and too complicated now. Instead, a new way needs to be found to achieve transparency, and to build trust.

Complexity is also an issue in supply chain-related due diligence. It’s a time-consuming paper-based process, suffering from inconsistent or missing data, as well as from tight budgets allocated to compliance requirements in areas such as modern slavery, working conditions, foreign bribery, conflict finance, and environmental impacts such as pollution. Building sustainable supply chains has become a strategic objective for many organizations across sectors.

The blockchain principle

Blockchain technology provides a means to address these challenges. It has been described as “an open, distributed ledger that can record transactions between two parties efficiently, and in a verifiable and permanent way.”[1]

Several of the words in that description are crucial:

• Open and distributed – it’s effectively a database that’s shared by all active parties
• Efficient – the system can trigger transactions automatically
• Verifiable – every record is identified and validated
• Permanent – every record is also protected from deletion, tampering, and revision.

Challenges ahead

Right now, organizations are still exploring proofs of concept for blockchain-enabled solutions, taking some of them into production, and are looking to establish networks with like-minded businesses for potential mutual benefit.

Progress, however, has been slow. Enterprises have hesitated for several reasons. For example:

• They have been debating which platform will offer them the best fit in areas such as security, privacy, scalability, integration, and customer experience
• They have been unsure of the regulatory and compliance implications of deployment, and also about questions of ownership and interoperability with other technologies
• They haven’t been able to identify their best potential use case, or how comprehensive it should be, and most importantly how to structure the right business case around it
• Nor have they been able to decide whether to make the first move in creating a consortium, or whether to join an existing one
• They have been aware of the extensive communication, interaction, and change management effort needed ahead, which has also put up mental hurdles.

They have several tactical and technological issues to address, including performance and scalability, data governance, enterprise architecture, change management, and business process design.

How blockchain can help

If organizations are able to resolve their questions, they will find that blockchain can make a significant difference to their supply chain operations.

First of all, blockchain’s decentralized approach to data management and sharing isn’t necessarily more efficient than centralized systems, but it is uniquely able to resolve important issues of trust, visibility, and accountability. It provides a shared and dependable platform for the trusted exchange and referencing of information between organizations that are active in the supply chain.

Next, its time-stamping and identification attributes make it easier to automate transactions and repetitive processes such as billing and shipping. This, in turn, facilitates a move to the real-time handling of events.

Blockchain also enables the creation of smart contracts, to ease the burden of several heavy supply chain transactions, such as those involving transfer of ownership or of intellectual property.

What’s more, the immutability of the technology means that blockchain provides a single, shared, and tamper-proof source of truth, and hence a verifiable audit trail for all transactions.

Drawing on our cross-industry research, as well as on interviews with experts and startups, we have identified a number of blockchain use cases across the value chain, which we have segmented based on their complexity and adoption levels. They can be seen in the graph below.

The same Capgemini Research Institute survey identified several benefits that participating organizations anticipated from blockchain projects in the supply chain. Almost nine out of ten respondents (89%) expected to achieve cost savings. Also, just as in a public survey conclusions can be drawn not from detailed responses but from general trends, so with blockchain, the outward identifiers of blocks can be expected to enhance both traceability and transparency. As many as 81% (traceability) and 79% (transparency) of our respondents foresaw these benefits.

How to implement a successful blockchain program

Let’s assume an organization has taken a long, hard look at itself. It has acknowledged that it faces several of the challenges articulated earlier in this article, and it recognizes and wants the benefits that blockchain can bring to its supply chain. What are the steps it should take?

In fact, the long, hard look is a step in itself, because first, it establishes the need, and second, it assesses readiness: organizations will have a sense not just of the strengths upon which they can build, but also of the hills they will have to climb.

Next, they should start to develop their strategy. Within the organization, they should attempt to remove as many sources of friction in the supply chain as possible before embarking on the transition to blockchain. At Capgemini, we use the Digital Global Enterprise Model (D-GEM) – our proprietary business transformation platform – to help our clients deliver significant improvements in terms of productivity, performance, scalability, and data governance – and indeed also in terms of enterprise architecture, change management, business process design, and the business case as a whole. remain competitive in a rapidly changing, business context. This, in turn, enables, what we call, the Frictionless Enterprise.

Their strategy also needs to be developed in the context of the environment they occupy – of their market position, and also of their specific supply chain ecosystem. The current approach will not be a one-size-fits-all model – it will be something that has developed over years in response to specific needs. In this respect, at least, the blockchain model will be no different. It will need to be tailored to circumstances, which is why those circumstances need to be thoroughly understood.

Organizations will of course also need to know what success looks like. How will it be measured? Which metrics will be key? What will be the project management milestones for the implementation of technical solution elements including information systems integration, IoT implementation, the incorporation of user apps, and of course the transition to blockchain?

In addition, businesses will need to implement robust security controls from the outset, and especially before scaling up the initiative.

And they will need to define the governance strategy. This is likely to be a collegiate decision, working closely with other parts of the supply chain – and possibly also with other enterprises operating in the same space. The result could be a standard set of principles that the industry and its regulatory bodies will recognize and accept.

The importance of focus

In short, blockchain can play a major role in the enterprise, by catalyzing the emergence of more efficient, reliable and sustainable supply chains.

But as with so many desirable goals, a little effort and patience are required.

Effort, patience – and focus. Blockchain isn’t a buzzphrase, and it isn’t a panacea. If organizations truly want it to deliver, they need to keep business impact and value creation in the very front and center of their thinking.

[1] Iansiti, Marco; Lakhani, Karim R. (January 2017). "The Truth About Blockchain". Harvard Business Review. Harvard University.

In the first paper in this series, we considered some typical supply chain challenges, and the extent to which blockchain technology can address them. In this paper, we will look at one of those challenges in more detail.

The challenge of trust

In a supply chain partnership, trust is usually developed over time between two companies. They learn how the other business does things, and they get used to one another’s paperwork. They also get to know people by name, and if there’s an issue, they know who to call.

Today, however, life is more complicated – and the larger the enterprise at the heart of the supply chain, the more complex things are likely to be. There are more players, and more variables, and not all relationships will be of long standing. As a result, participants often don’t know one another. They lack visibility over each other’s data and activities. All of which means that trust has to be established in another way.

Trust doesn’t just have to be established, either. It also needs to be demonstrable, and this, too, is a challenge. Performing supply chain due diligence can be a time-consuming, paper-based process, with insufficient budget, limited information on product traceability, inconsistent or missing data, and ever greater demands in areas such as modern slavery, working conditions, foreign bribery, conflict finance, and environmental sustainability. For example, it’s not unusual for a shipping container transporting cargo from, say, China to Europe, to need sign-off from dozens of unique organizations, involving hundreds of interactions.

This is why gathering, consolidating, and managing information on the chain of custody or traceability of goods through the supply chain is so crucial.

Consumer needs and their implications

If operational excellence is a regulatory requirement, it’s also being driven by increasingly demanding consumers. People want products to be affordable and immediately available – but there are growing public concerns regarding the origin, quality, and validity of products. Consumers want to know they can trust label certifications and that the environment credential of the product and the companies have substance.

The COVID-19 crisis has reinforced these twin needs. People want to benefit from traceability features and quality, but at the same time, they require them to be very rapidly implemented. For instance, they want facemasks as soon as possible – but they want to know where they’re from, and that they are certified to be fit for purpose.

Companies therefore have to reinvent themselves and rely on new technologies. These include:

• Continuous monitoring – control towers are more important than ever as they allow teams to take strategic, tactical, and real-time operational decisions. They help in improving decision making, shifting supplier allocations, and in ensuring more accurate demand planning
• Flexibility and agility in production and logistics schedules – businesses can adjust their production and logistics schedules to prioritize customer/product segments in line with new constraints or with mismatches in demand and supply
• Full visibility and transparency – building visibility into the operations and vulnerabilities of suppliers and logistics partners enables organizations to respond quickly to potential supply disruption.

Traceability issues – introducing blockchain

As we’ve mentioned, one of the main due diligence challenges is limited information. However, this is just one of the problems with traditional traceability – the product trail can be difficult to replicate, and it isn’t always easy to gather all the required product information at the same time. What’s more, even when all information is available, it isn’t always consistent – different parties in the supply chain may use different notations, and regulatory compliance requirements between sectors can also vary, creating different criteria for the presentation of information. Add to this the fact that the information handling processes may themselves be underperforming, and the scope for traceability challenges is plain to see.

The list of participants in a supply chain includes manufacturers and suppliers, transportation companies, warehousing facilities, intermediaries such as dealers and OEMs, and end-customers or consumers. Blockchain technology sets up a common network that is able to connect all these groups to one another. It also enables events to be traced on the blockchain ledger.

In supply chain terms, blockchain creates two kinds of participant:

• Active – organizations that need to write and validate transactions (such as suppliers, transporters, OEM, and warehouses)
• Passive – external parties, such as those that can have read-only access to the blockchain (including public sector bodies, banks and insurers), and also such as clients.

In recent years, the retail, insurance/financial services and pharmaceutical sectors have taken the lead in implementing blockchain traceability initiatives at scale.

Let’s consider two potential approaches to the implementation of blockchain traceability in a supply chain.

Centralized trust

In the first case, customers want an immutable system-of-record or ledger, in which each change can be easily traced and verified cryptographically, and in which no history can be lost or falsified. Such organizations might include healthcare businesses that need to verify and track hospital equipment inventory, HR, and payroll departments tracking changes to an employee’s profile, or manufacturers tracking the distribution of a product that has been recalled. Because of the nature of their operations, these organizations are happy to have a centralized ledger.

For instance, let’s take a public sector body responsible for motor vehicles. It will have a current record of all the vehicles in its jurisdiction. It will also have the historical data.

For customers such as these, it’s possible to build what has been termed a quantum ledger database (QLDB). This has two components:

• The current state and an indexed history of all transactions, including the current value and historical state of the data
• A journal, which has a cryptographically verifiable and sequenced log of each transaction or change in the system. The changes are chained together as blocks.

This means that, when application data comes in, it gets logged to the journal first, and then gets stored in the database, so it can be queried.

Decentralized trust

There’s a second set of use cases where you have many complex workflows that span multiple organizations. Often, in these instances, the organizations must collaborate with each other, but none of them can rely on a specific member to manage the shared system of record, either because they don’t want them to have a competitive advantage, or because they don’t want dependencies over which they lack control. Examples include financial institutions conducting peer-to-peer payments, mortgage lenders processing syndicated loans, retailers streamlining customer rewards, and of course, supply chains, transacting with their suppliers and distributors.

Before blockchain, many industries were obliged to pass paper around, because a more elaborate system would still be hampered by these various forms of reluctance to share or to relinquish control. Now, however, a fully managed service such as Amazon Managed Blockchain makes it easy to create and manage scalable blockchain networks using popular open-source frameworks.

Blockchain – traceability benefits

In short, blockchain can help to address traceability challenges. Track and trace functionality solutions implemented with blockchain enable entire supply chain networks to document updates to a single shared ledger, which provides total data visibility and a single source of truth. We have already seen it’s a technology that has been described as “an open, distributed ledger that can record transactions between two parties efficiently, and in a verifiable and permanent way”[1] – and because of this, it can directly address traceability issues by:

• Providing an audit trail for all transactions, right back to a product’s raw materials
• Creating a consistent digital thread
• Enabling automation and smart contracts, so as to streamline processes
• Establishing an immutable ledger, with easily verifiable and tamper-proof data
• Offering a single and shared source of truth.

Traceability in action

Let’s see how blockchain-enabled traceability can work in practice, across a global enterprise serving a fast-moving consumer market. In this case, we’re looking at a major coffee brand.

Consumers take great interest in their coffee. They like to know about attributes associated with its taste, such as its provenance, the type of plantation, how it’s processed, how it’s graded, how fresh it is, how it’s been roasted, and for how long. They also like to know it’s been produced ethically, and with due consideration for the environment.

The business naturally wants to satisfy these interests – but it also has information needs of its own. It wants to know about production methods and quality. It wants to know about availability, and not just in the short term. It wants to know about the commercial transactions at different points in the supply chain. And it wants to know about business practices across the board – from the farm through to the packaging function. What’s more, the business needs to know all this in real time – coffee is best consumed within just six weeks.

What complicates the picture for consumer and business alike is that there are so many participants. Coffee is sourced from dozens of countries, hundreds of regions, and thousands of farms. There are also thousands of grading facilities, wholesalers, brokers, roasting factories, distributors, packaging suppliers, and retailers.

To ensure that the product and every process is best-in-class, the business needs to track not just the coffee but also the bill of materials that makes the finished product.

In a supply chain as long, as global, and as complex as this, blockchain technology meets the traceability needs of the business, its customers, and of key players in the supply chain:

• Transparent – it sets the standard for information sharing between all the partners in the supply chain, with access to and queries of the ledger
• Immutable – it puts in place a disciplined data sharing structure
• Verifiable – supply chain participants can go back in time to audit each other based on certification.

In the next paper in this series, we’ll be considering in more detail how blockchain can enhance transparency and accountability between supply chain participants. In the meantime, watch a video on how blockchain can enable next-generation product traceability.

[1] Iansiti, Marco; Lakhani, Karim R. (January 2017). “The Truth About Blockchain”. Harvard Business Review. Harvard University.

In previous papers in this series, we’ve looked at the broad challenges faced in the supply chain, and at how blockchain technology can address them. We’ve also looked specifically at traceability.

This time we’re focusing on the relationship between the buyers, their suppliers, and other participants in the supply chain. As the title of this paper says, we’re also looking at how blockchain can enhance transparency and accountability between all these players.

Know your supplier (KYS)

Major organizations these days maintain highly complex webs of suppliers. They may be in different tiers – organized, for example, by geography, or by the nature of the product or service they provide. They will also, almost certainly, be at different levels, too: an engine manufacturer doesn’t make its own steel, and a dressmaking supplier probably won’t make its own buttons.

All of this makes it hard for enterprises not only to reach and understand all these suppliers, in their many tiers and at their many levels, but to maintain up-to-date information about them. Creating and maintaining a supply chain map will improve control, and will help organizations to see potential problems early, react to them, assess their risk, and take decisions promptly. The COVID-19 outbreak has heightened the need. As the Harvard Business Review said recently, “A small minority of companies that invested in mapping their supply networks before the pandemic emerged better prepared. They have better visibility into the structure of their supply chains.”

Just as in consumer markets, the current mantra is “know your customer,” so in the supply chain, it’s more strategically important than ever for organizations to know their suppliers. This, however, can represent a significant data management challenge, and in two ways.

The first is supplier relationship management. Businesses need to have real-time processes in place for onboarding, for requesting updates, and for managing lifecycles and supplier performance.

The second is supplier risk management. Here, businesses need to establish alerts for key performance indicators (KPIs), and to monitor operational risks in areas such as disruption, quality, and creditworthiness. Possibly most critically of all, they need to be mindful of reputational risk, commonly termed ESG (environmental, social, and governance). Managing ESG is growing in strategic significance, sometimes to existential levels: for instance, revelations of slave labor or of habitat destruction in the supply chain could lead to the unmaking of a previously respected brand.

Addressing these two areas is a substantial data management challenge, because all this information must not only be gathered into comprehensive profiles of individual suppliers, but maintained and monitored in real time.

KYS – what’s needed

To manage supplier relationships, there are several prerequisites for data collection:

• Privacy needs to be designed in, so as to earn suppliers’ trust
• Outreach needs to be easy. Why make the task laborious?
• Tools should be user-friendly
• Processes should be designed so as to avoid the duplication of tasks. Suppliers have to fill out plenty of forms as it is
• Updates to information should be pushed through from suppliers automatically.

But that’s not all. Everything on the list above needs to be replicable at scale. Major enterprises can have as many as 10,000 or 15,000 suppliers. In order to achieve widespread adoption, data should be pre-filled as much as possible from external sources. Anything that makes life easy increases the chances of it happening.

Also, there should be incentives for suppliers to collaborate. For instance, their profile with a buyer could be presented to them as a “passport.” This means not only that it can be easily used elsewhere, without starting again from the beginning, but also that it acts as a form of endorsement, building the supplier’s credibility, and possibly facilitating access to financing.

With all these supplier relationship management requirements satisfied, organizations will then be able to address their supplier risk management needs, putting real-time risk monitoring measures in place, including alerts and data visualization tools, so they can maintain insight and control.

KYS – what blockchain provides

As we’ve noted in previous papers in this series, blockchain technology is “an open, distributed ledger that can record transactions between two parties efficiently, and in a verifiable and permanent way.”[1] It addresses each of the main “know your supplier’” issues fairly comprehensively:

• Privacy concerns – blockchain’s cryptography provides peace of mind, ownership and control
• Manual processing – automation enables smart contracts and cuts down on paperwork
• Lack of trust – blockchain provides full traceability, enabling an end-to-end audit trail
• Accountability – blockchain establishes a trusted ID, so everyone can be certain of who is sending information, or requests for information. This facilitates the secure exchange of certificates and verified credentials
• Lack of visibility – by providing an ecosystem of network connectivity, blockchain facilitates network mapping, and simplifies direct outreach.

Capgemini has developed a blockchain-based asset, called Trusted Data Exchange, designed to bring those benefits in the context of KYS. Trusted Data Exchange establishes private, peer-to-peer communications between buyers and suppliers, each of whom has its own secure and structured vault of data and documents. The identity of each party is firmly established, and the end-to-end, tamper-proof audit trail keeps track of any exchange of information.

In a supply chain environment such as this, processes are streamlined, cost efficiencies are possible, and decisions are actionable faster. All parties fully own their own data, and sharing is based on consent. It can be used to manage workflow traceability (with delivery notes and purchase orders, for example); to establish compliance (of participating businesses, and of their different locations and assets); and to support procurement (for instance, with supply chain financing).

An environment such as this makes supplier onboarding much more straightforward for all parties. Third-party information providers such as general business data sources and specialist certifiers can pre-fill some of the general information and ESG fields on a questionnaire, perhaps leaving for the new supplier’s completion only those fields it may not have been asked to fill by anyone else before. Similarly, certification can be much simpler: buyers can request certifications from their lower-level suppliers either directly or via their Level 1 suppliers in a completely secure and traceable communications channel. Here, too, third-party data specialists can provide statutory compliance and ESG information, reducing the inherent workload for all parties.

What emerges from all this is the goal of the supply chain map, with which this article began. Buyers gain control and oversight of their entire supply chain, across both tiers and levels, enabling them to manage operations and monitor risk. Suppliers gain by knowing they are ratified and trusted by their buyers, by knowing that they can return that trust, and by knowing, too, that remain in control of their own data.

These developments could not have come at a better time. For one thing, as we have noted, the pandemic has created new pressures on the supply chain; and for another, in recent years, major enterprises have grown more aware than ever of public expectations, and have been making significant commitments to sustainable development. It is therefore especially incumbent on supply chain management functions to demonstrate accountability against KPIs such as ESG metrics – and this is clearly something that blockchain can help them to deliver.

Industry focus – apparel

The clothing industry provides an interesting example of how increased supply chain transparency could benefit society.

The Sustainability Accounting Standards Board (SASB) is a US organization that assesses the applicability and reporting of metrics. SASB has indicated that certain aspects of sustainability are material to investors for apparel, accessories, and footwear companies. One of these material aspects is how well these companies monitor their supply chain.

Analysis conducted by CSRHub has shown that clothing companies are doing a good job of reporting several of the metrics SASB identified. However, based on data CSRHub aggregated from hundreds of private sector and public data sources, clothing company supply chain metrics are inconsistent and difficult to verify.

Apparel industry companies and their stakeholders are interested in improving this situation. While apparel companies hope to highlight areas of risk and improve quality and delivery performance, other stakeholders seek to eliminate child slavery, improve working conditions, and encourage participation in apparel supply chains by minority and women-owned businesses.

Recognizing the need to change, a consortium of apparel companies, not-for-profit organizations, government bodies and industry groups have established the Open Apparel Registry (OAR). The OAR’s map already comprises over a hundred buyers, and thousands of supply facilities. Its usefulness has already been demonstrated, even at this early stage, by the ability to log personal protective equipment (PPE) manufacturer data.

However, this effort does not yet incorporate or rely upon blockchain technology. One reason is that OAR data cannot track what buyers bought or what suppliers provided. It is not tied to specific standards. Buyers and suppliers are reluctant to share information that could be of advantage to their competitors.

Blockchain technology would directly address these issues, by establishing a framework that is consistent, comprehensive, and private, enabling individual buyers and the industry as a whole to manage supplier relationships, to manage risk – and to demonstrate to the outside world their determination to act responsibly.

[1] Iansiti, Marco; Lakhani, Karim R. (January 2017). “The Truth About Blockchain”. Harvard Business Review. Harvard University.

Executive sponsors:

• Damien de Chillaz, Head of Blockchain & B2B Platforms, Capgemini’s Business Services
• Jörg Junghanns, Head of Digital Supply Chain, Capgemini’s Business Services
• Adrien Calvayrac, France Innovation Ecosystem Lead, Capgemini AIE Network
• Jean-Baptiste Meriem, Blockchain Lead, Capgemini Invent

How to make blockchain the game-changer for the supply chain:

• Damien de Chillaz, Head of Blockchain & B2B Platforms, Capgemini’s Business Services
• Sudhir Pai, Chief Technology Officer, Capgemini’s Financial Services
• Adrien Calvayrac, France Innovation Ecosystem Lead, Capgemini AIE Network